Note 8 - Loans

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

8.Loans

Most of the Company’s business activities are with customers located in the high-density Asian-populated areas of Southern and Northern California; New York City, New York; Dallas and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Rockville, Maryland; and Las Vegas, Nevada. The Company also has loan customers in Hong Kong. The Company has no specific industry concentration, and generally its loans, when secured, are secured by real property or other collateral of the borrowers. The Company generally expects loans to be paid off from the operating profits of the borrowers, from refinancing by other lenders, or through sale by the borrowers of the secured collateral.

The types of loans in the Company’s Condensed Consolidated Balance Sheets as of September 30, 2020, and December 31, 2019, were as follows:

	September 30, 2020			December 31, 2019
	(In thousands)
Commercial loans	$	2,848,000		$	2,778,744
Residential mortgage loans		4,169,847			4,088,586
Commercial mortgage loans		7,459,316			7,275,262
Real estate construction loans		675,112			579,864
Equity lines		411,848			347,975
Installment and other loans		1,656			5,050
Gross loans	$	15,565,779		$	15,075,481
Allowance for loan losses		(179,130	)		(123,224	)
Unamortized deferred loan fees, net		(4,210	)		(626	)
Total loans, net	$	15,382,439		$	14,951,631

As of September 30, 2020, recorded investment in impaired loans totaled $105.8 million and was comprised of non-accrual loans of $77.2 million and accruing troubled debt restructured loans (“TDRs”) of $28.6 million. As of December 31, 2019, recorded investment in impaired loans totaled $75.9 million and was comprised of non-accrual loans of $40.5 million and accruing TDRs of $35.4 million. For impaired loans, the amounts previously charged off represent 6.1% and 2.1% of the contractual balances for impaired loans as of September 30, 2020 and December 31, 2019, respectively.

The following table presents the average recorded investment and interest income recognized on impaired loans for the periods indicated:

	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Commercial loans	$	30,346	$	148	$	38,659	$	208	$	30,723	$	242	$	41,132	$	705
Real estate construction loans		4,368		98		4,662		—		4,444		245		4,734		—
Commercial mortgage loans		40,708		268		40,699		332		37,730		966		51,323		1,034
Residential mortgage loans and equity lines		16,609		74		13,133		78		15,240		200		13,126		237
Total impaired loans	$	92,031	$	588	$	97,153	$	618	$	88,137	$	1,653	$	110,315	$	1,976

The following table presents impaired loans and the related allowance for loan losses as of the dates indicated:

	September 30, 2020						December 31, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	16,210	$	13,293	$	—	$	20,134	$	15,857	$	—
Real estate construction loans		5,776		4,335		—		5,776		4,580		—
Commercial mortgage loans		22,996		22,532		—		9,234		9,030		—
Residential mortgage loans and equity lines		7,921		7,814		—		6,171		6,073		—
Subtotal	$	52,903	$	47,974	$	—	$	41,315	$	35,540	$	—
With allocated allowance
Commercial loans	$	28,059	$	20,871	$	7,704	$	8,769	$	8,739	$	2,543
Commercial mortgage loans		31,138		31,019		582		26,117		26,040		473
Residential mortgage loans and equity lines		6,632		5,914		209		6,740		5,540		220
Subtotal	$	65,829	$	57,804	$	8,495	$	41,626	$	40,319	$	3,236
Total impaired loans	$	118,732	$	105,778	$	8,495	$	82,941	$	75,859	$	3,236

The following tables present the aging of the loan portfolio by type as of September 30, 2020, and as of December 31, 2019:

	September 30, 2020
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)
Commercial loans	$	4,956	$	7,098	$	—	$	29,757	$	41,811	$	2,806,189	$	2,848,000
Real estate construction loans		19,000		2,657		—		4,335		25,992		649,120		675,112
Commercial mortgage loans		4,275		—		2,868		33,782		40,925		7,418,391		7,459,316
Residential mortgage loans and equity lines		212		—		—		9,317		9,529		4,572,166		4,581,695
Installment and other loans		—		—		—		—		—		1,656		1,656
Total loans	$	28,443	$	9,755	$	2,868	$	77,191	$	118,257	$	15,447,522	$	15,565,779

	December 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)
Commercial loans	$	24,681	$	9,954	$	6,409	$	19,381	$	60,425	$	2,718,319	$	2,778,744
Real estate construction loans		5,846		6,753		—		4,580		17,179		562,685		579,864
Commercial mortgage loans		7,694		2,609		—		9,928		20,231		7,255,031		7,275,262
Residential mortgage loans and equity lines		26,028		965		—		6,634		33,627		4,402,934		4,436,561
Installment and other loans		—		—		—		—		—		5,050		5,050
Total loans	$	64,249	$	20,281	$	6,409	$	40,523	$	131,462	$	14,944,019	$	15,075,481

The determination of the amount of the allowance for loan losses for impaired loans is based on management’s current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectability when determining the appropriate level for the allowance for loan losses. The nature of the process by which the Bank determines the appropriate allowance for loan losses requires the exercise of considerable judgment. This allowance evaluation process is also applied to TDRs since they are considered to be impaired loans. The allowance for loan losses and the reserve for off-balance sheet credit commitments are significant estimates that can and do change based on management’s process in analyzing the loan portfolio and on management’s assumptions about specific borrowers, underlying collateral, and applicable economic, market and environmental conditions, among other factors. Although the Company took steps to incorporate the impact of the COVID-19 pandemic on the economic conditions and other factors (such as the severity and length of the COVID-19 pandemic and its impacts) utilized to determine the allowance for loan losses, if the economic conditions or other factors worsen relative to the assumptions the Company utilized, the allowance for loan losses will increase accordingly in future periods.

A TDR is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity date that causes significant delay in payment.

TDRs on accrual status are comprised of the loans that have, pursuant to the Bank’s policy, performed under the restructured terms and have demonstrated sustained performance under the modified terms for six months before being returned to accrual status. The sustained performance considered by management pursuant to its policy includes the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructure to set up interest reserves.

As of September 30, 2020, accruing TDRs were $28.6 million and non-accrual TDRs were $9.9 million compared to accruing TDRs of $35.3 million and non-accrual TDRs of $18.0 million as of December 31, 2019. The Company allocated specific reserves of $395 thousand to accruing TDRs and $42 thousand to non-accrual TDRs as of September 30, 2020, and $822 thousand to accruing TDRs and $2.2 million to non-accrual TDRs as of December 31, 2019. The following tables set forth TDRs that were modified during the three and nine months ended September 30, 2020 and 2019, their specific reserves as of September 30, 2020 and 2019, and charge-offs for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30, 2020								September 30, 2020
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		2	$	2,983	$	2,983	$	—	$	203
Total		2	$	2,983	$	2,983	$	—	$	203

	Three Months Ended September 30, 2019								September 30, 2019
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		3	$	7,585	$	6,165	$	—	$	89
Total		3	$	7,585	$	6,165	$	—	$	89

	Nine Months Ended September 30, 2020								September 30, 2020
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		5	$	5,417	$	5,417	$	—	$	203
Total		5	$	5,417	$	5,417	$	—	$	203

	Nine Months Ended September 30, 2019								September 30, 2019
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(In thousands)
Commercial loans		23	$	25,937	$	10,814	$	—	$	125
Total		23	$	25,937	$	10,814	$	—	$	125

Modifications of the loan terms in the nine months ended September 30, 2020 were in the form of extensions of maturity dates, which ranged generally from three to twelve months from the modification date. 

We expect that the TDRs on accruing status as of September 30, 2020, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans.  The ongoing impact of the COVID pandemic, however, could increase the risk of such TDRs becoming non-accrual due to the borrowers' inability to continue to comply with their restructured terms.  A summary of TDRs by type of concession and by type of loan, as of September 30, 2020, and December 31, 2019, is set forth in the table below:

	September 30, 2020
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs
Commercial loans	$	4,406	$	—	$	—	$	4,406
Commercial mortgage loans		582		5,662		13,526		19,770
Residential mortgage loans		1,940		284		2,187		4,411
Total accruing TDRs	$	6,928	$	5,946	$	15,713	$	28,587

	September 30, 2020
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs
Commercial loans	$	8,902	$	—	$	—	$	8,902
Residential mortgage loans		1,017		—		—		1,017
Total non-accrual TDRs	$	9,919	$	—	$	—	$	9,919

	December 31, 2019
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Accruing TDRs
Commercial loans	$	5,215	$	—	$	—	$	5,215
Commercial mortgage loans		615		5,748		18,779		25,142
Residential mortgage loans		2,525		311		2,143		4,979
Total accruing TDRs	$	8,355	$	6,059	$	20,922	$	35,336

	December 31, 2019
	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Non-accrual TDRs
Commercial loans	$	16,692	$	—	$	—	$	16,692
Commercial mortgage loans		1,220		—		136		1,356
Total non-accrual TDRs	$	17,912	$	—	$	136	$	18,048

The activity within TDRs for the periods indicated is set forth below:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(In thousands)
Accruing TDRs
Beginning balance	$	31,671		$	64,898		$	35,336		$	65,071
New restructurings		2,983			240			5,417			15,432
Restructured loans restored to accrual status		263			—			263			—
Charge-offs		—			(1,341	)		—			(1,341	)
Payments		(6,330	)		(22,150	)		(12,429	)		(36,219	)
Restructured loans placed on non-accrual status		—			—			—			(1,296	)
Ending balance	$	28,587		$	41,647		$	28,587		$	41,647

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(In thousands)
Non-accrual TDRs
Beginning balance	$	12,670		$	22,457		$	18,048		$	24,189
New restructurings		—			7,345			—			10,505
Restructured loans placed on non-accrual status		—			—			—			1,296
Charge-offs		—			(2,389	)		(4,970	)		(3,607	)
Payments		(2,488	)		(7,626	)		(2,896	)		(12,596	)
Restructured loans restored to accrual status		(263	)		—			(263	)		—
Ending balance	$	9,919		$	19,787		$	9,919		$	19,787

The Company considers a loan to be in payment default once it is 60 to 90 days contractually past due under the modified terms.  The Company did not have any loans that were modified as a TDR during the previous twelve months and which had subsequently defaulted as of September 30, 2020.

Under the Company’s internal underwriting policy, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification in order to determine whether a borrower is experiencing financial difficulty.

As of September 30, 2020, there were no commitments to lend additional funds to those borrowers whose loans had been restructured, were considered impaired, or were on non-accrual status.

The CARES Act, signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications.

As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk grade to each loan. The risk rating categories can be generally described by the following grouping for non-homogeneous loans: 

● Pass/Watch – These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.

● Special Mention – Borrower is fundamentally sound, and loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay. Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support.

● Substandard – These loans are inadequately protected by current sound net worth, paying capacity, or collateral. Well-defined weaknesses exist that could jeopardize repayment of debt. Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss.

● Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan), a loss classification is deferred until the situation is better defined.

● Loss – These loans are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

The following tables set forth the loan portfolio by risk rating as of September 30, 2020 and December 31, 2019:

	September 30, 2020
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,553,148	$	156,869	$	137,983	$	—	$	2,848,000
Real estate construction loans		548,075		122,299		4,738		—		675,112
Commercial mortgage loans		7,215,288		114,653		129,375		—		7,459,316
Residential mortgage loans and equity lines		4,571,766		212		9,717		—		4,581,695
Installment and other loans		1,656		—		—		—		1,656
Total gross loans	$	14,889,933	$	394,033	$	281,813	$	—	$	15,565,779

	December 31, 2019
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	2,528,944	$	166,016	$	83,784	$	—	$	2,778,744
Real estate construction loans		461,597		113,687		4,580		—		579,864
Commercial mortgage loans		6,992,933		196,454		85,875		—		7,275,262
Residential mortgage loans and equity lines		4,427,205		914		8,442		—		4,436,561
Installment and other loans		5,050		—		—		—		5,050
Total gross loans	$	14,415,729	$	477,071	$	182,681	$	—	$	15,075,481

The following tables set forth the balance in the allowance for loan losses by portfolio segment and based on impairment method as of September 30, 2020 and December 31, 2019:

	September 30, 2020
			Real Estate		Commercial		Residential		Installment
	Commercial		Construction		Mortgage		Mortgage Loans		and
	Loans		Loans		Loans		and Equity Lines		Other Loans		Total
	(In thousands)
Loans individually evaluated for impairment
Allowance	$	7,704	$	—	$	582	$	209	$	—	$	8,495
Balance	$	34,164	$	4,335	$	53,551	$	13,728	$	—	$	105,778
Loans collectively evaluated for impairment
Allowance	$	71,690	$	32,712	$	46,083	$	20,150	$	—	$	170,635
Balance	$	2,813,836	$	670,777	$	7,405,765	$	4,567,967	$	1,656	$	15,460,001
Total allowance	$	79,394	$	32,712	$	46,665	$	20,359	$	—	$	179,130
Total balance	$	2,848,000	$	675,112	$	7,459,316	$	4,581,695	$	1,656	$	15,565,779

	December 31, 2019
			Real Estate		Commercial		Residential		Installment
	Commercial		Construction		Mortgage		Mortgage Loans		and
	Loans		Loans		Loans		and Equity Lines		Other Loans		Total
	(In thousands)
Loans individually evaluated for impairment
Allowance	$	2,543	$	—	$	473	$	220	$	—	$	3,236
Balance	$	24,596	$	4,580	$	35,070	$	11,613	$	—	$	75,859
Loans collectively evaluated for impairment
Allowance	$	54,478	$	19,474	$	33,129	$	12,888	$	19	$	119,988
Balance	$	2,754,148	$	575,284	$	7,240,192	$	4,424,948	$	5,050	$	14,999,622
Total allowance	$	57,021	$	19,474	$	33,602	$	13,108	$	19	$	123,224
Total balance	$	2,778,744	$	579,864	$	7,275,262	$	4,436,561	$	5,050	$	15,075,481

The following tables set forth activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2020, and September 30, 2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three months ended September 30, 2020 and 2019
								Residential
				Real Estate		Commercial		Mortgage Loans		Installment
	Commercial			Construction		Mortgage		and		and Other
	Loans			Loans		Loans		Equity Lines		Loans		Total
	(In thousands)
June 30, 2020 Ending Balance	$	82,256		$	26,700	$	41,132	$	19,592	$	—	$	169,680
Provision for possible credit losses		298			6,012		5,438		752		—		12,500
Charge-offs		(6,956	)		—		—		—		—		(6,956	)
Recoveries		3,796			—		95		15		—		3,906
Net (charge-offs)/recoveries		(3,160	)		—		95		15		—		(3,050	)
September 30, 2020 Ending Balance	$	79,394		$	32,712	$	46,665	$	20,359	$	—	$	179,130

										Residential
				Real Estate			Commercial			Mortgage Loans			Installment
	Commercial			Construction			Mortgage			and			and Other
	Loans			Loans			Loans			Equity Lines			Loans			Total
	(In thousands)
June 30, 2019 Ending Balance	$	54,293		$	21,010		$	33,154		$	14,164		$	30		$	122,651
Provision/(reversal) for possible credit losses		7,400			(2,690	)		(4,648	)		(2,057	)		(5	)		(2,000	)
Charge-offs		(3,356	)		—			—			—			—			(3,356	)
Recoveries		212			3,378			4,961			62			—			8,613
Net (charge-offs)/recoveries		(3,144	)		3,378			4,961			62			—			5,257
September 30, 2019 Ending Balance	$	58,549		$	21,698		$	33,467		$	12,169		$	25		$	125,908

Nine months ended September 30, 2020 and 2019
								Residential
				Real Estate		Commercial		Mortgage Loans		Installment
	Commercial			Construction		Mortgage		and		and Other
	Loans			Loans		Loans		Equity Lines		Loans			Total
	(In thousands)
2020 Beginning Balance	$	57,021		$	19,474	$	33,602	$	13,108	$	19		$	123,224
Provision/(reversal) for possible credit losses		29,402			13,238		12,718		7,161		(19	)		62,500
Charge-offs		(13,383	)		—		—		—		—			(13,383	)
Recoveries		6,354			—		345		90		—			6,789
Net (charge-offs)/recoveries		(7,029	)		—		345		90		—			(6,594	)
September 30, 2020 Ending Balance	$	79,394		$	32,712	$	46,665	$	20,359	$	—		$	179,130
Reserve for impaired loans	$	7,704		$	—	$	582	$	209	$	—		$	8,495
Reserve for non-impaired loans	$	71,690		$	32,712	$	46,083	$	20,150	$	—		$	170,635
Reserve for off-balance sheet credit commitments	$	4,297		$	896	$	172	$	294	$	4		$	5,663

										Residential
				Real Estate			Commercial			Mortgage Loans			Installment
	Commercial			Construction			Mortgage			and			and Other
	Loans			Loans			Loans			Equity Lines			Loans		Total
	(In thousands)
2019 Beginning Balance	$	54,978		$	19,626		$	33,487		$	14,282		$	18	$	122,391
Provision/(reversal) for possible credit losses		8,262			(2,540	)		(5,234	)		(2,495	)		7		(2,000	)
Charge-offs		(6,300	)		—			—			—			—		(6,300	)
Recoveries		1,609			4,612			5,214			382			—		11,817
Net (charge-offs)/recoveries		(4,691	)		4,612			5,214			382			—		5,517
September 30, 2019 Ending Balance	$	58,549		$	21,698		$	33,467		$	12,169		$	25	$	125,908
Reserve for impaired loans	$	744		$	—		$	536		$	221		$	—	$	1,501
Reserve for non-impaired loans	$	57,805		$	21,698		$	32,931		$	11,948		$	25	$	124,407
Reserve for off-balance sheet credit commitments	$	2,505		$	1,608		$	121		$	313		$	3	$	4,550

The ongoing COVID-19 pandemic has caused significant disruption in the United States and international economies and financial markets. Although banks have generally been permitted to continue operating, the COVID-19 pandemic has caused disruptions to our business and could cause material disruptions to our business and operations in the future. The Company has continued its efforts to support its customers affected by the pandemic and to maintain asset quality and balance sheet strength, including the following:

• The Company has provided loans through the SBA's Paycheck Protection Program, or “PPP”. As of September 30, 2020, 1,437 PPP loans with a current balance of $265.7 million have been approved by the Small Business Administration.

• The Company has outstanding modifications on approximately 95 commercial real estate loans totaling $428.1 million as of September 30, 2020, which represented 5.7% of the Bank’s commercial real estate loans and 24 commercial loans, totaling $64..6 million, which represented 2.3% of the total commercial loans.

• As of September 30, 2020, COVID-19 modifications outstanding include 367, or $180.6 million, in residential mortgage loans, that represented 4.3% of the total residential mortgage portfolio, and 21 HELOC loans totaling $6.5 million, which represented 1.6% of total HELOC loans.